Hal Varian: I RECEIVED an email from The Economist's editor in London referring to Tyler Cowen's book yesterday afternoon. I went to Amazon, downloaded the book to my iPad, and read it...all in the space of an hour and a half. I then composed this note and sent it to London—19 hours after receiving the first email. I have every reason to believe that this note will appear on economist.com a few hours after it is received. None of this would have been possible 30 years ago. It is therefore particularly ironic that a major theme of the book is about how technological progress has stalled in the last 30 years.

To be fair, Mr Cowen singles out the internet as “one sector where we've had more innovation than anyone had expected”. The problem with the internet, according to Mr Cowen, is that it doesn't contribute much to jobs or revenue. But these facts just show that the internet is hugely efficient in producing consumer surplus: a relatively small amount of labour (plus a substantial dose of capital and know how) produces a huge amount of benefits.... osts of communication and computation have tumbled. William Nordhaus at Yale University claims that computing performance has increased by a factor of 1 to 5 trillion since 1900, which represents a compound growth rate of 30-35% for a century. Since 1940, the growth rate has accelerated to 50% a year.

It's not that the growth in benefits from technology has stagnated. Quite the contrary, it's the growth in costs that have stagnated. And that's a good thing!

I think Annie Lowrey is wrong (and Tyler Cowen is wrong):

Annie Lowrey: Has the Internet, the most revolutionary communications technology advance since Gutenberg rolled out the printing press, done nothing for GDP growth? The answer, economists broadly agree, is: Sorry, but no—at least, not nearly as much as you would expect.... [A] theory... espoused by Cowen himself... [is that] the Internet is just not as revolutionary as we think it is. Sure, people might derive endless pleasure from it—its tendency to improve people's quality of life is undeniable. And sure, it might have revolutionized how we find, buy, and sell goods and services. But that still does not necessarily mean it is as transformative of an economy as, say, railroads were.

That is in part because the Internet and computers tend to push costs toward zero, and have the capacity to reduce the need for labor. You are, of course, currently reading this article for free on a Web site supported not by subscriptions, but by advertising....

That the Internet has not produced an economic boom might be hard to believe, Cowen admits. "We have a collective historical memory that technological progress brings a big and predictable stream of revenue growth across most of the economy," he writes. "When it comes to the web, those assumptions are turning out to be wrong or misleading. The revenue-intensive sectors of our economy have been slowing down and the big technological gains are coming in revenue-deficient sectors."... [I]f our most radical and life-altering technologies are not improving incomes or productivity or growth, then we still have problems. Quality-of-life improvements do not put dinner on the table or pay for Social Security benefits...

But the typical middle-class North Atlantic family already put dinner on the table perfectly well.

We--especially me--really do not need more calories, thank you.

What we need is the ability to quickly search and decide exactly what kind of dinner we want brought to us if we are lazy.

What we need is the ability to figure out quickly what the tastiest and most nutritional recipe we can make with what is in the fridge if we are feeling industrious.

Those are the things that the internet is best at.

That the internet is not "producing revenue" is completely beside the point. What the internet is doing is, as Paul Seabright has already written, saving attention--and that is much more valuable.

Given a choice between doubling the amount of calories consumed by the typical middle-class American family--or doubling the amount of furniture purchased, or doubling the amount of automobiles owned, or doubling the number of clothes in our closets--and halving the time we must spend searching for what we want to buy, to read, to watch, to listen to, can anyone think that this is a difficult choice?

And to the extent that our price indexes do not take into account the improvements in quality of life from the internet, we don't have to spend as much on Social Security benefits as the CPI suggests in order to provide our seniors with a generous standard of living.

Comments

A "Great Stagnation"?--NOT!!

I think Hal Varian is right:

Hal Varian: I RECEIVED an email from The Economist's editor in London referring to Tyler Cowen's book yesterday afternoon. I went to Amazon, downloaded the book to my iPad, and read it...all in the space of an hour and a half. I then composed this note and sent it to London—19 hours after receiving the first email. I have every reason to believe that this note will appear on economist.com a few hours after it is received. None of this would have been possible 30 years ago. It is therefore particularly ironic that a major theme of the book is about how technological progress has stalled in the last 30 years.

To be fair, Mr Cowen singles out the internet as “one sector where we've had more innovation than anyone had expected”. The problem with the internet, according to Mr Cowen, is that it doesn't contribute much to jobs or revenue. But these facts just show that the internet is hugely efficient in producing consumer surplus: a relatively small amount of labour (plus a substantial dose of capital and know how) produces a huge amount of benefits.... osts of communication and computation have tumbled. William Nordhaus at Yale University claims that computing performance has increased by a factor of 1 to 5 trillion since 1900, which represents a compound growth rate of 30-35% for a century. Since 1940, the growth rate has accelerated to 50% a year.

It's not that the growth in benefits from technology has stagnated. Quite the contrary, it's the growth in costs that have stagnated. And that's a good thing!

I think Annie Lowrey is wrong (and Tyler Cowen is wrong):

Annie Lowrey: Has the Internet, the most revolutionary communications technology advance since Gutenberg rolled out the printing press, done nothing for GDP growth? The answer, economists broadly agree, is: Sorry, but no—at least, not nearly as much as you would expect.... [A] theory... espoused by Cowen himself... [is that] the Internet is just not as revolutionary as we think it is. Sure, people might derive endless pleasure from it—its tendency to improve people's quality of life is undeniable. And sure, it might have revolutionized how we find, buy, and sell goods and services. But that still does not necessarily mean it is as transformative of an economy as, say, railroads were.

That is in part because the Internet and computers tend to push costs toward zero, and have the capacity to reduce the need for labor. You are, of course, currently reading this article for free on a Web site supported not by subscriptions, but by advertising....

That the Internet has not produced an economic boom might be hard to believe, Cowen admits. "We have a collective historical memory that technological progress brings a big and predictable stream of revenue growth across most of the economy," he writes. "When it comes to the web, those assumptions are turning out to be wrong or misleading. The revenue-intensive sectors of our economy have been slowing down and the big technological gains are coming in revenue-deficient sectors."... [I]f our most radical and life-altering technologies are not improving incomes or productivity or growth, then we still have problems. Quality-of-life improvements do not put dinner on the table or pay for Social Security benefits...

But the typical middle-class North Atlantic family already put dinner on the table perfectly well.

We--especially me--really do not need more calories, thank you.

What we need is the ability to quickly search and decide exactly what kind of dinner we want brought to us if we are lazy.

What we need is the ability to figure out quickly what the tastiest and most nutritional recipe we can make with what is in the fridge if we are feeling industrious.

Those are the things that the internet is best at.

That the internet is not "producing revenue" is completely beside the point. What the internet is doing is, as Paul Seabright has already written, saving attention--and that is much more valuable.

Given a choice between doubling the amount of calories consumed by the typical middle-class American family--or doubling the amount of furniture purchased, or doubling the amount of automobiles owned, or doubling the number of clothes in our closets--and halving the time we must spend searching for what we want to buy, to read, to watch, to listen to, can anyone think that this is a difficult choice?

And to the extent that our price indexes do not take into account the improvements in quality of life from the internet, we don't have to spend as much on Social Security benefits as the CPI suggests in order to provide our seniors with a generous standard of living.